Modern Measuring Techniques Masking Great Depression Unemployment Levels
Posted by Michael A. Kamperman on January 10, 2010
Sometimes it is better to sit back and think rather than to react. My initial reaction was to pound the table on how the latest unemployment report is showing the job situation to be much weaker than the economists and the Obama Administration have led us to believe. The talk of an improving trend in job losses has become so acceptable that the Administration is out taking credit for losing only 85,000 jobs in December and stating that it is a 90% improvement over peak monthly job losses. My reflex is to point out that in order to keep a 10% unemployment rate we had to drop another 600,000 plus people out of the labor force. Despite the stimulus bill aimed at supporting state budgets we lost another 21,000 government jobs. I also wanted to point out that when we hire 1.2 million census workers between now and May, only to let them go by November, we will be temporarily understating the true state of the unemployment situation. The reality is this unemployment report showed no signs that job creation is on the horizon, unless of course you are looking for temporary work without benefits. Will the new census workers receive health insurance, or a pension, or a sense of permanency? But giving a blow by blow description of what is happening in the economic game can cause one to fail to see the forest for the trees. It is the methods we are using to keep the economic game stats that are deluding us into thinking we are better off than we really are. We need an economist of stature to step forward and say we need to rewrite the way we measure the outcome of the game.
Since the beginning of 2008 we have dropped 1 million people out of the labor force. We started 2008 by saying 154 million Americans wanted a full-time job and we ended 2009 by saying only 153 million people wanted a full-time job. We need to add 125,000 workers per month to account for a 1% growth in population. This means we have 3 million more people looking for a full-time job at the end of 2009 than at the beginning of 2008. Effectively we have cut 4 million people out of the labor force because they have become too discouraged to get turned down for the hundredth time. If we add these workers back in then the number of people unemployed would be nearing 20 million and the unemployment rate would be 12.3%. While it may have made sense to assume that if someone wasn’t aggressively looking for work in a vibrant economy that person didn’t want a job bad enough to be counted as officially unemployed, it makes no sense to use the same criteria in a depressed economy when jobs simply are not available and the number of long-term unemployed breaks a new record month after month after month. When they counted the unemployed during the Great Depression they didn’t ask whether or not you had mailed out three resumes in the last three weeks.
Undercounting our unemployed leads us to policy errors. The Obama Administration would be not be so complacent to claim the GDP measured recession is over and we are showing a positive trend in job losses if the nightly news reported the official unemployment rate is now up to 12.3%, a level not seen since the Great Depression. We are hiding our soup lines with food stamps. Over 6 million people say the only income they have is food stamps. They couldn’t eat without them. When the news media and the economic pundits keep pushing the lie that we have avoided another Great Depression they are only prolonging the solutions and open the door to who knows what when it all hits the fan. Sweeping the truth under the rug is only going to lead to more pain and even larger outrage. Are we sure we can control the fury?
Finance Considered said,
I think the answer is no to the very last question. Movements such as the Tea party, are lashing out and are focusing on the administration. It will be only a matter of time before they start to realize as well, that Wall St. dictates to Congress and not the other way round. How many American’s that see their life savings destroyed and their homes foreclosed will be eager to stand up and defend the Wall Street gang, in a decent country they would be in jail.
Badtux said,
Finance, somehow I doubt that a movement dominated by oldsters waving signs around saying “keep your government hands off my Medicare!” has the intellectual heft to connect the dots that you connect. One thing is clear: “Let them eat cake” is not a viable solution. But my fear is that the solution that the majority arrive at will be the same as the majority arrived at in much of the world as the Great Depression settled in — dictatorship by a “Strong Man” who promises to save them. That rarely turns out well, the streets typically run with blood afterwards, and the villains who created the Great Depression through their greed and stupidity were rarely the ones lined up against the wall, rather, labor unionists, Jews, socialists, etc. were the typical victims, none of whom had any hand in the collapse of the banking system that was the primary cause of the Depression (liquidity trap, y’know).